MEPs clash over scope of Corporate Sustainability Reporting Directive

Lead rapporteur, Pascal Durand, warns that because of ‘two contradicting positions’ in the European Parliament, reaching agreement on the proposal will not be easy
Wavebreakmedia Ltd FUS5 / Alamy Stock Photo

By Andreas Rogal

Andreas Rogal is a senior journalist at the Parliament Magazine

12 Jan 2022

The European Parliament’s contribution to the reform of sustainability reporting obligations for industry - so they fit in with the EU’s Green Deal goals - has taken off and reached committee stage on Monday.

With the Legal Affairs (JURI) Committee leading, and no fewer than six more committees involved in drafting opinions, JURI rapporteur Pascal Durand (FR, Renew), set the tone by warning that it would not be easy to reach agreement in Parliament on the dossier, as there were “two contradicting positions”:

“Some want to narrow the scope [of affected companies and industries] as set out by the European Commission proposal, and on the other hand there are those who want an extensive widening of that scope.”

The Proposal for a Corporate Sustainability Reporting Directive (CSRD) will replace the current Non-Financial Reporting Directive (NFRD), and suggests widening the NFRD’s scope from large public-interest companies with more than 500 employees to all large companies and all companies listed on regulated markets except listed micro-enterprises.

The division over scope dominated Monday’s first debate in committee. The EPP Group’s JURI shadow, Daniel Buda (RO), argued that “protecting European industry in these hard times” was of utmost importance.

He did, however, stress that it was, in his view, essential for SMEs and small companies to be covered by the regulation, while making sure that they are not excessively burdened by it.

“Some want to narrow the scope [of affected companies and industries] as set out by the European Commission proposal, and on the other hand there are those who want an extensive widening of that scope” JURI Committe lead rapporteur Pascal Durand (FR, Renew)

To make sure they are not, Buda recommended “sufficient support and training so that they can find their way through this”.

The ID Group’s shadow Gilles Lebreton (FR) disagreed with an inclusion of SMEs, or at least “certainly not in the first instance”, as it would involve “too many dangers” for them.

He received support from JURI substitute and veteran member of the Industry, Research and Energy (ITRE), Angelika Niebler (DE) who also called for an, at least initial, exemption of companies with fewer than 500 employees.

“We would not be able to see the wood for the trees if we included them”, she commented, adding that it would be an unwelcome outcome to simply create “another boom for the major auditing firms”, who would conduct reporting exercises, on the back of “our already financially stretched” SMEs.

Drafting the opinion for the Economic and Monetary Affairs (ECON) Committee, Jessica Polfjärd (SE, EPP), warned that the Union should not regulate against global trends.

Referring to similar regulatory proposals currently being drafted outside the EU, particularly in the USA and in China, she called on the rapporteur to take alignment with international efforts into consideration.

Angelika Niebler (DE, EPP) commented that it would be an unwelcome outcome to simply create “another boom for the major auditing firms”, who would conduct reporting exercises, on the back of “our already financially stretched” SMEs"

Polfjärd described the regulation’s goal as enabling “investors and other data users to see how sustainable a company actually is not overburden companies with red tape and costs”.

The S&D Group’s JURI shadow, Tiemo Wölken (DE), turned the economic argument around and called for the inclusion of SMEs in the scope of the CSRD proposal, because it would create a “level playing field” and “access to investment”.

The Green/EFA Group’s vice-chair and JURI shadow Marie Toussaint (FR) agreed, and called for an inclusion of “‘high-risk’ SMEs”, a definition of which was to be found in her and other groups’ amendments.

Karin Karlsbro (SE, Renew), the rapporteur for the Foreign Affairs (AFET) Committee’ opinion found that the Commission had done well in “walking the line between the need for reporting for as many companies active in the EU as possible, and to not put too much burden on companies”.

But she also called for the additional introduction of a risk-based approach, and the inclusion of “non-listed SMEs in ‘high-risk’ sectors”.

Drafting the Environment, Public Health and Food Safety (ENVI), Committee’s opinion, Lídia Pereira (PT, EPP), reminded her colleagues that their work on the CSRD is “closely linked to the other Union legislation and obligations that fall on companies, investors and other financial markets, in particular under the Taxonomy Regulation and Sustainable Finance Disclosure Regulation.” However, unnecessary overlap between them should be avoided, warned Pereira.

The rapporteur and his shadows in JURI will have a first meeting to reduce the over 500 amendments by agreeing on as many compromise agreements as possible on Thursday.

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